Self-certification Mortgages Explained

With the uncertainty of the job market in the UK today, more and more people are turning to working for themselves. While this can be a positive step in that it means you don’t answer to anyone but yourself, it can also open up another set of problems. The biggest problem faced can be getting a mortgage with no fixed income or payslip, it’s more difficult to be accepted. This can be overcome, however, with a self-certification mortgage.

The good news is that more lenders are opening their eyes to the self-employed market, although that shouldn’t come as a surprise, with 14% of the UK being self-employed. Despite this, it’s only in the last few years that lenders have come up with self-certification mortgages. If you’re self-employed and you want to buy a house, it’s worth knowing what’s involved and what type of mortgage you can have.

The Differences

The main difference between a standard mortgage and a self-certification one is obviously income, or lack of it. Whereas in a full-time job you have a steady income and either a weekly or monthly payslip, when you’re self-employed this changes drastically. Depending on your profession, you could go weeks or even months without any kind of income.

This is where lenders traditionally get nervous” because you can’t guarantee what earnings you’ll have in any given week, there’s the chance that this could affect your ability to pay your mortgage. Because of this, there’s less chance of being approved for one or there was, before elf-certification mortgages.

The main difference with these is that you’re approved on what you expect to earn, as opposed to physical proof. However, lenders will still want to see some kind of proof of what your average income will be this could be via an accountant if you have one, or invoices and bank statements for the last three years. Although if you can provide details of your income for three years or more, you might even be eligible for a more traditional mortgage.

The Disadvantages

Although they can help self-employed people buy a home, a self-certification mortgage does have a few downsides when compared to a normal mortgage. Much like a bad credit mortgage, it usually involves a higher interest rate, due to you being seen as a potentially bad risk (even if you’re earning over six figures a year). This is especially true if you’ve been trading less than 2 years, when most businesses traditionally fail.

Another disadvantage is that there are still a limited amount of lenders willing to provide these types of mortgage at the moment, compared to the hundreds of lenders for traditional mortgages. On top of this, you’ll probably have to pay a higher deposit unlike the typical 5% down on a normal mortgage, you can expect to pay as much as 25% of the cost of the house as your deposit.

Despite this, self-certification mortgages are an excellent option for anyone struggling to buy a house because they’re self-employed. With many even offering an option where you can defer payments until your own invoices are paid, they’re ideal for those where income isn’t guaranteed to be on time.